The Myths Surrounding Car Finance
The car finance industry can be a confusing area for many, and with a constant stream of information and advice available, it can be difficult to tell if what we are reading is fact or fiction. Nevertheless, with four in five new cars in the UK being purchased or attained on finance, it is important […]
The car finance industry can be a confusing area for many, and with a constant stream of information and advice available, it can be difficult to tell if what we are reading is fact or fiction. Nevertheless, with four in five new cars in the UK being purchased or attained on finance, it is important that people fully understand the ins and outs of loan applications before making one.
We explore five common myths surrounding car finance and explain the reality of the situation so that people applying for a loan can make a better informed decision.
Myth 1: Car finance is only available to those with good credit ratings
Whilst having a poor credit rating can surely prevent an applicant from being granted a car loan from certain providers, this is not the case for all of them. In fact, there are many modern finance brokers which now specifically focus on helping people secure car finance with bad credit.
These lenders do still look at an applicant’s credit history, but they are typically more concerned with the bigger picture and will take into account a range of personal factors when deciding whether it is safe to offer them a loan.
Really, the only significant difference between a person with a high credit rating and someone without one is that the high credit applicant is much more likely to be granted a better interest rate.
Myth 2: There is a credit “blacklist” known to all financial providers
This is one of the most common myths surrounding the car finance industry, with many people mistakenly believing that there is a credit “blacklist” which exists, listing people in the UK who are barred from receiving loans for failure to meet their financial responsibilities. This is thought to be a large database with people’s personal details listed, which is shared with financial providers and stops people from being accepted for car loans, credit cards and mortgages.
The truth of the matter is, no such database exists – an application may be rejected for any number of reasons, but being on a blacklist shared by all providers is certainly not one of them!
Myth 3: Loan providers can guarantee applicants car finance
There are very few things that are guaranteed in life, which is why people should be absolutely skeptical of any finance broker who claims that they are able to guarantee loans to all types of applicant.
Lenders are obliged to run a credit report check and review each application before they decide to grant a car loan. It is, therefore, implausible that every single person would be guaranteed a loan since some are unreliable and would not be able to pay back the amount they owed.
As such, those promoting ‘guaranteed’ car finance should not be trusted, as this is both unethical and irresponsible. It is for this reason that, under the UK Consumer Credit (Advertisements) Regulations 2010, legal action may be taken against any company which uses these types of terms to try to entice people into making a loan application.
This means that if you ever come across a broker who promises a car loan to any person, no matter their circumstances, it is best to steer well clear.
Myth 4: Your address could be the reason for your application rejection
This is one myth which has stood the test of time, because credit checks against addresses were used in the past. However, finance lenders these days will instead assess an applicant based on their individual circumstances, as opposed to the credit history associated with their registered address.
This helps put an end to the issues which occurred in the past, such as applicants being rejected for finance due to a previous resident’s failure to pay off their debts.
Myth 5: Car loans are only available to those over 21
Whilst there are, of course, some lenders who will only accept applications from those over the age of 21, there are many whose minimum age is 18. UK law holds that any person above 18 can enter into a financial agreement, so a wide number of lenders have lowered their age requirements to keep in line with the law.
In fact, certain loan providers are more than happy to consider applications from young drivers and students, particularly since there are options to nominate a guarantor (usually a family member), who will be financially responsible for repayments if the borrower cannot do so.
Above all, when deciding to purchase a car on finance, carrying out research and shopping around for the most suitable loan option is the best and smartest way to avoid falling victim to any potential problems.